Tata Power’s Q2FY09 numbers were largely in line with expectations, with a 45 per cent y-o-y rise in revenues to Rs 1,960 crore and 6 per cent y-o-y increase in earnings to Rs 178 crore. The adjustments to earnings include Rs 31 crore for provisional performance incentives (which have been booked on a quarterly basis starting Q1FY09), Rs 76.7 crore gain on account of fluctuations in foreign exchange and Rs 8.3 crore for future tax adjustments.

The company’s generation capacity addition projects are on track. The 250 MW Trombay unit and the 120 MW Haldia will be fully operational by end-FY09E. The Jojobera expansion is expected to be completed in FY10E. The operational performance of the Bumi coal mines in Indonesia, where Tata Power has 30 per cent stake, has not been impacted to any extent by the issues being faced by Bumi Resources in Indonesia.

Tata Power has projects of 5,660 MW in the construction stage, most of which have secured fuel linkages and achieved financial closure, giving the company strong earning visibility. With the bulk of the projects expected to be commissioned by FY12-13E, value accretion is more back-ended. The brokerage maintains its ‘accumulate’ recommendation on the stock.

Bharat Electronics
Current market price: Rs 576.25
Target price: Rs 1,209
Upside: 109.8%
Brokerage: Sharekhan

Bharat Electronics’ (BEL) Q2FY09 results were below expectations with an 11.1 per cent y-o-y growth in revenues to Rs 787.7 crore and only 0.73 per cent y-o-y growth in earnings to Rs 123.7 crore. Traditionally, the first half of a fiscal is weak for BEL with most of the growth being back-ended. Thus, the quarterly fluctuations do not necessarily reflect the performance of the full year.

Being in the strategic electronics business BEL enjoys a market share of about 57 per cent and the growth prospects for this sector are bright. As per the Union Budget 2008-09, there has been a 27 per cent increase in the capital outlay for defense procurement over the last year’s outlay.

This provides immense opportunities for BEL to supply its products and services to the defense sector. The company continues to have a healthy order book position at Rs 9,450 crore.

The current order book is at 2.3x its FY08 revenues of Rs 4,070 crore. At Rs 1,209, the stock trades at 6x FY09E and 5x FY10E earnings. BEL is a high dividend paying company with an attractive dividend yield of 3.6 per cent. It is also very cash rich with estimated cash per share of Rs 398. On the basis of adjusted earnings (adjusted for cash), the company trades at 2.1xFY09E and 2xFY10E earnings.

Allcargo Global Logistics
Current market price: Rs 302
Target price: Rs 600
Upside: 98.7%
Brokerage: Kotak Securities

Allcargo Global Logistics’ net sales for Q3CY08 was at Rs 138.6 crore, up 76.7 per cent y-o-y on the back of traction in its multi-modal transport operation (MMTO) and container freight station (CFS) businesses. CFS volumes have grown by 57.9 per cent y-o-y, primarily due to ramping up of the Chennai and Mundra CFS.

This helped the company improve its EBIDTA margin by 820 basis points y-o-y to 26.7 per cent. Its PAT for Q3CY08 was at Rs 26 crore, up 129.2 per cent y-o-y. On a consolidated basis, the company’s net sales grew by 56.4 per cent y-o-y to Rs 631.5 crore, while net profit jumped by 144.6 per cent y-o-y to Rs 42.1 crore.

Allcargo has firmed up plans to set up two greenfield ports on both coasts of the country. The company is initially looking to invest Rs 500 crore for this project and the construction work is expected to begin in a year.

The company is also looking at acquisition opportunities in the logistics segment in the US, Japan and Germany. In the equipment hiring business, the company has 53 cranes as on date and another four cranes are in transit, which would be commissioned in the current quarter.

Accommodating for higher than expected revenues due to rupee depreciation and increased profitability, the brokerage has revised the consolidated EPS to Rs 54 for CY08E (Rs 52.6 earlier). At Rs 334, the stock trades at 6.2x consolidated CY08E earnings. Maintain buy.